Cash Flow Management Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Flow Management flashcards as text
A company purchases equipment worth $200,000 by issuing common stock. How is this disclosed in the cash flow statement?
Answer: As a non-cash investing and financing activity in supplemental disclosures
Significant non-cash transactions must be disclosed separately in the supplemental schedule, not within the main body of the cash flow statement.
Which of the following represents a cash inflow under investing activities?
Answer: Proceeds from sale of a subsidiary
Proceeds from disposing of a subsidiary represent the sale of a long-term investment, classified as an investing inflow under IAS 7 and ASC 230.
The Baumol cash management model treats cash management similarly to which inventory model?
Answer: Economic Order Quantity (EOQ) model
The Baumol model applies EOQ logic to cash, balancing the transaction cost of converting securities to cash against the opportunity cost of holding idle cash.
A company's DSO increased from 30 to 45 days. Assuming stable sales, what is the most likely impact on operating cash flow?
Answer: Decrease, because more cash is tied up in receivables
Higher DSO means the company takes longer to collect, increasing accounts receivable and reducing cash inflows from operations.
Which of the following is NOT added back to net income under the indirect method?
Answer: Gain on sale of equipment
A gain on asset sale is subtracted (not added back) under the indirect method because the cash proceeds are reported in investing activities, avoiding double-counting.
Which of the following scenarios would indicate strong cash flow quality for a CA-level analyst?
Answer: Operating cash flow consistently exceeds reported net income
When operating cash flow consistently exceeds net income, it suggests high earnings quality with real cash backing the reported profits.
A firm adopts a more aggressive working capital policy. Which of the following outcomes is most expected?
Answer: Lower current assets relative to current liabilities, increasing liquidity risk but improving profitability
An aggressive working capital policy minimizes current assets and uses more short-term debt, trading higher liquidity risk for potentially higher returns on investment.